Delta Corp, Nazara Tech: Online gaming, casino stocks crash; should you stay away?

Stocks in focus: Shares of online gaming and casino companies took a heavy beating on Wednesday, July 12, a day after the Goods & Services Tax (GST) Council agreed to levy a 28 per cent tax on online gaming, casinos, and horse racing. The council said the tax would be levied at full face value.

At the time of filing this report, Delta Corp stock was trading around 22 per cent lower at Rs 192.80 on the BSE. The stock tanked as much as 30 per cent to Rs 172.80 earlier in the trade. OnMobile Global was trading nearly 4.5 per cent lower at Rs 75.85. The stock tumbled as much as 7.78 per cent to Rs 73.21 on the BSE. Nazara Tech shares sank as much as 14.3 per cent to Rs 605 on the BSE. However, the stock recovered later but was still trading nearly 4 per cent lower at Rs 680.30 on the BSE.

After the GST Council's announcement, Nazara Tech today issued a clarification in which it said that this tax, once implemented, will apply only to the skill-based real-money gaming segment of its business. "The contribution of this segment to our overall consolidated revenues for the financial year FY23 was 5.2 per cent," the company added.

GST rate hike: What industry says

Post-decision, online gaming companies said on Tuesday that levying 28 per cent GST will limit their ability to invest in new games and impact cash flows as well as business expansion. The All India Gaming Federation (AIGF), which represents companies like Nazara, GamesKraft, Zupee, and Winzo, said the decision by the council is unconstitutional, irrational, and egregious.

"The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities. This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses, and the only people benefiting from this will be anti-national illegal offshore platforms," AIGF CEO Roland Landers said.

Delta Corp, Nazara Tech shares: Should you stay away?

Analysts say the decision is a big blow to the companies, and hence, people should exit the stocks whenever they get an opportunity. "I don't think the government will reverse the tax rates; thus, it's a big blow to the entire industry not only because the cost of participation will increase but also in terms of the operations of the companies," said G Chokkalingam, Founder and Managing Director at Equinomics Research.

The expert further said that Delta Corp will be impacted the most due to the hike in GST rates. Delta Corp is engaged in the casino (live, electronic and online) gaming industry in India. Incorporated in 1990 as a textiles and real estate consulting company, Delta Corp has now evolved into diversified segments like Casino gaming, Online gaming, hospitality, and Real estate.

Some of the stocks' valuations were already stretched, and hence there is no growth trigger as of now. The premium that these companies received was because of their growth story. Now, that kind of growth will not be there. In fact, there will be degrowth as not only the earnings will shrink, but the price-to-earnings (P/E) multiple will also shrink badly for companies like Delta Corp. Hence, investors should shun these stocks, Chokkalingam added.

AK Prabhakar, the Head of Research at IDBI Capital, shares similar views. In his words, "We don't track gaming because there's always a risk of regulatory issues. Also, this GST rate hike was bound to happen. We don't have any coverage. We will stay away and advise our clients to stay away from these stocks too," the expert added.